The city council of Morristown is considering the purchase of a new fire truck.

Question

The city council of Morristown is considering the purchase of a new fire truck. The options are Truck X and Truck Y. The appropriate financial data are as follows.

Truck X Truck Y
Capital investment $50,000 $60,000
Maintenance cost per year $6,000 $4,500
Useful life 6 years 6 years
Reduction in fire damage $18,000 $20,000
per year

It was purchased at 12% interest per year

Using ^ to answer the following:
What is the conventional B-C ratio for Truck X?

(a) 1.048
(b) 0.87
(c) 1.64
(d) 1.10
(e) 1.15

Explanation / Answer

Using Excel:

Truck X Truck Y Year Benefit Cost Benefit Cost 0 50000 60000 1 18000 6000 20000 4500 2 18000 6000 20000 4500 3 18000 6000 20000 4500 4 18000 6000 20000 4500 5 18000 6000 20000 4500 6 18000 6000 20000 4500 PW $74,005.33 $74,668.44 $82,228.15 $78,501.33 B/C 0.99111925 1.04747453

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